BILL ANALYSIS 1
1
SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS
DEBRA BOWEN, CHAIRWOMAN
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|SB 476 - Chesbro |Hearing Date:April 27, | S|
| |1999 | |
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|As Introduced: February 18, | | B|
|1999 | | |
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| | | 4|
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| | | 7|
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| | | 6|
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DESCRIPTION
Current law allows mobilehome parks to bill residents
separately for utility services, including liquid propane
service, if the rental agreement does not include such
services.
This bill limits the price that mobilehome park owners may
charge tenants for propane if the park owner does not
permit the tenant to purchase his/her own propane. The
price which park owners may charge is capped at 110% of the
actual price paid by the park owner.
BACKGROUND
This bill addresses the issue of liquid propane pricing by
mobilehome parks whose tenants have no alternative but to
purchase propane from the park's propane distribution
system. A 1993 study by the California Public Utilities
Commission (CPUC) estimated that approximately 500 of the
state's approximately 1,200 mobilehome parks operated
multi-customer systems where the residents can only
purchase propane from the park owner, creating an effective
monopoly. Propane is to mobilehomes as natural gas is to
traditional homes, yet while the retail price of natural
gas is regulated, the retail price of propane is not. This
bill is intended to deal with this inconsistency in state
policy.
The author doesn't believe that the sale of propane to
captive residents should be allowed to be a profit center
for mobilehome park owners. This bill limits that profit
by capping rates at 110% of the price paid by the park
owner. Out of the 10% margin, the park owner would
presumably cover the costs of operating and maintaining the
system of pipes and storage tanks which deliver the propane
to the mobilehomes. The 10% figure is not scientifically
based, but the author has apparently attempted to acquire
actual cost data from park owners without success. Without
such data it is not possible to determine a fair margin.
The Legislature has three times in the last ten years
passed bills to limit propane prices in mobilehome parks.
Bills that capped propane prices at 110% of the wholesale
price were passed by the Legislature and vetoed in 1989 and
1991. In 1998, AB 2016 (Brown), which capped the price of
propane at the price paid by the park management plus a
monthly charge to cover the cost of operating, maintaining,
and improving the distribution system, also passed the
Legislature and was vetoed.
COMMENTS
1)The supporters of this bill argue that it is necessary to
prevent excessive charges for propane by mobilehome park
owners. They note that many residents of mobilehome
parks are senior citizens living on fixed incomes.
2)The opponents of this bill contend that the 10% markup
permitted by this bill is too small, and may not be large
enough to cover cost. This could create an incentive for
the park owners to abandon the service, leaving the
tenants to deal with propane distributors directly
forcing them to acquire individual storage containers and
higher prices. They also argue that the 10% markup could
provide a safety disincentive because it doesn't allow
the park owner adequate funds to pay for necessary
maintenance and safety-related costs.
3)Arguably, there is a gap in the state's regulatory scheme
which regulates the sale of natural gas to a traditional
home but allows the sale of gas to a mobilehome to go
unregulated. This gap could allow some mobilehome park
owners to engage in profiteering on an essential service,
made worse because the tenants are often on fixed income.
4)The opponents don't appear to oppose some price cap
provided that the cap allows for the recovery of all
relevant costs and a reasonable profit. It certainly is
not in the tenants interest to limit the park owner's
income to a level which does not cover his costs. The
notion that such a limitation would cause the park owner
to abandon service, and thereby impose additional cost
and inconvenience on the tenant, is realistic. It is
also reasonable to conclude that by fixing the markup as
a percentage of cost of the propane, the owner has an
incentive to purchase costly propane in order to increase
his markup. That would certainly be an unintended
consequence.
5)The author and committee may wish to consider a different
approach to solving the problem. It might be preferable
to permit the park owner to pass onto the tenants all the
reasonable costs of operating and maintaining the
distribution system, as well as making a reasonable
profit. This was the approach taken in AB 2016 last
year. If there were some dispute as to the
"reasonableness" of the cost and profit, the tenants
could then be permitted to take their case to some
arbitrator. The arbitrator could be the CPUC, who could
also be compelled to develop guidelines for reasonable
costs and profit. In the alternative the tenants could
be given the right to go to court and have the cost and
profit be found unreasonable.
6)The Rules Committee has double-referred this bill to the
Judiciary Committee.
POSITIONS
Support:
American Association of Retired Persons
Area Agency on Aging, Eureka
James D. Castro, Pollock Pines
El Dorado County Commission on Aging
Golden State Mobile Homeowners League (Sponsor)
Western Center on Law and Poverty, Inc.
Oppose:
Suburban Propane
Western Mobilehome Parkowners Association
Western Propane Gas Association
Randy Chinn
SB 476 Analysis
Hearing Date: April 27, 1999